Cling together, swing together? VW and Audi: Why companies cheat

VW and Audi would have had to know it. As early as 1973, the Volkswagen Group had courted controversy because its most famous car at that time, the beetle, had temperature sensors installed – to adjust emissions – without specifying this adaptation during the approval. Back then, VW got away with a penalty of US$ 120,000. Forty-three years later, it is not so cheap anymore. Initial compensation settlements have costed VW some $ 15 billion. Now Audi also find itself in the pillory, when the state of New York makes serious allegations against both Audi and VW.

Audi and VW are typical examples of a phenomenon that has been termed ‘organizational deviance’ in sociology and criminology. All the ingredients are included. Organizational deviance means that employees of a company deviate from formal laws, rules and regulations to the advantage of the company and in doing so follow the informal, unwritten rules and expectations of the company. Organizational deviance is a familiar aspect of any organization, but not every organization draws on illegal means. Audi and VW have tricked and tampered in their own ways, and have long shirked their responsibility. It was not until September 20, 2015, that the Volkswagen Group confessed – eleven years after the introduction of the defeat device and almost one year and a half after the US authorities (the U.S. Environmental Protection Agency and the California Environmental Protection Agency Air Resources Board) launched an investigation in view of a study by the ICCT (International Council on Clean Transportation) in May 2014.

What are the ingredients of organizational deviance, which, even in the case of Audi – and apart from the technical reasons – have made the organization deviate from the rules?

1. The ‘normalization’ in the industryAudi and VW operated in an environment where manipulations were common. Red flags had been raised as early as 1974, and VW was by no means the only spot on the radar screen. Suspicions have also engulfed other major auto manufacturers such as Chrysler, Ford, GM and Toyota who were suspected of installing similar temperature sensors. In 1995, it was GM’s turn to stand in the spotlight, when its use of disabling software was exposed and the fine, now reaching US$20 million, was significantly higher than that in the earlier VW case. Three years later, the club of the disgraced had new members: Ford was caught using disabling software too, and received a penalty of US$7.8 million; Honda paid US$17.1 million for the same offense; the commercial vehicle industry (Caterpillar, Renault, Volvo, etc.) was sanctioned for its use of defeat devices and was collectively fined US$83.4 million on top of approximately US$1 billion for retrofits (Source: Wikipedia.de). According to complaints from New York State authorities, Audi had developed defeat devices since 2004 and disguised them as “acoustic functions”. Apparently, Volkswagen had taken over these devices for its cars at the end of 2006 (see Complaint, Supreme Court of the State of New York, July 19, 2016). According to investigative journalists, Opel has also come under suspicion of having played the same trick. Even Daimler is criticized for the apparent disparity between the emissions measured on the road and in the lab (ZDF, Frontal21, June 7, 2016).

2. The benefits for the company In the U.S., Audi has increased its sales figures from 82,000 cars in 2009 to 202,000 cars in 2015. The share of diesel-powered vehicles has risen, too. In 2015, diesel vehicles accounted for approximately 6% of Audi’s sales in the United States. The use of defeat device seemed helpful on its way to better sales – at least until its detection. In all likelihood, the software engineers, developers and their managers were motivated by these benefits. At the moment, they are not at all suspected of having personally enriched themselves through the manipulations.

3. The hierarchyWhen a company finds itself derailed from the legal path, it rarely occurs because of the greed and cunningness of a few ‘rotten apples’. Very often “subcultures” or “social cocoons” are formed in the organization – the ‘rotten barrels’ – in which the deviation is tolerated or even justified. One does not have to assume a “willful and systematic scheme of cheating by dozens of employees at all levels of the company about emissions” (Complaint, Supreme Court of the State of New York, July 19, 2016). But, without the knowledge and acquiescence of the top management, such extensive manipulations are hardly conceivable. Jones Day, the biggest law firm in the US, alleges in a report that as early as 2007 an Audi engineer had informed a larger circle of Audi executives in an e-mail that its diesel vehicles would not be able to comply with U.S. emissions limits “completely without cheating”. And it is well known that the pressure on the engineers to get this done, one way or another, was great.

4. Socialization, or ‘We have grown up with this’Repeatedly, it is not managers and employees who bring new experiences from companies outside the Group, but very loyal insiders who have long tenures within the corporation that take great personal risks for the benefit of the company. Usually, they do not realize any personal gains beyond the legitimate incentives of the company. Instead, they win recognition and reinforce their affiliation to the ‘inner circle’ of the Group with their deviant behavior. They have not only accumulated superior knowledge of the unwritten rules that are valid within the group, but also internalized them over the years. Conspicuously among these are unwritten rules that deviate from formal regulations or even laws. In the case of Volkswagen and Audi, we have noted especially long tenures of the Chief Engineers and Managers responsible for the development of new engines, and we must not ignore the fact that they have worked for the Group for more than 20 years. The top engineers, who are named by the prosecutors, also have long careers at their respective employers. However, we do not yet know whether the staff members who have been accused in the complaint were actually involved or informed.

At the time of writing, there are still no undisputable findings from the investigations. The pattern behind this scandal, however, would be typical for organizational deviance, if the allegations turn out to be true. It is not an uncommon finding that organizational deviance is mainly the brainchild of an inner circle of long-standing members who have ‘grown up’ with the unwritten rules of the corporation. For them, deviance on behalf of the corporation may become business as usual. German politics have certainly played a part, by giving the industry mixed signals, but messages from the U.S. were pretty clear. The complaint alleges that VW and Audi continued to operate defeat devices even after the investigation had been launched (Complaint, Supreme Court of the State of New York, July 19, 2016: 8). Cling together, swing together. All that remains is to wait and see how much Audi and Volkswagen will have to pay. Sometimes even the large corporations have to learn ‘compliance’ from painful and expensive litigations.